New York Times Article on LLC’s & Landlords and John’s Not-Really-Very-Brief Comments on the Same

The NYT article was amusing. And, as one would expect, largely wrong.

Synopsis: The NYT is very much in favor of government control & massive over-regulation of all economic activity (aka socialism), land-lording emphatically included. To that end, they have produced a grossly unbalanced article that ignores the larger purposes of LLC’s, landlords’ interests, citizens’ rights to privacy, and the larger economic effects of their proposed policies. What facts they do provide go one way to paint a highly distorted picture of LLC’s and landlords’ use of them. There are a few useful bits of information. It would appear that LLC’s do provide a good bit of privacy, certainly enough to irritate the fans of government control at the Times.

Let’s get more specific.

“L.L.C.s shield property owners from personal liability while obscuring their identities. In some cases, so much anonymity also enables money laundering”

The first sentence is mostly correct. Some states require owners to disclose their identities, though such requirements can generally be avoided by using trusts as owners of the LLC’s.

The second sentence is a great example of using the truth to lie. Yes, I’m sure there are cases of LLC’s being used to facilitate money laundering. Cars are also used to detonate large bombs. Both facts are true. In the case of laundering, the Times is trying to give the impression of “LLC’s bad” without giving any context (e.g. – all tools are misused, frequency of such misuse, weighing the benefits of such tools against the costs, etc.). They might as well assert that because money is used for money laundering, money should be banned or “regulated”.

The Times uses statements such as “LLC’s are employed to launder money” and other similar characterizations to paint an overall picture that does not match the larger reality – that’s the lie. The facts presented are technically true (i.e. – LLC’s are sometimes used to launder money) but weighted in such a way as to paint a false picture of the broader situation (i.e. – What are the larger purposes, benefits & uses of LLC’s? What is the frequency of this “laundering”, and do landlords in particular have to do with it?) to get a certain result (i.e. – advocate for limitations on privacy and LLC’s at the expense of entrepreneurs & landlords). So, no surprise that the NYT would engage in such disinformation with LLC’s; it has lots of practice in other contexts.

“and it can mean that tenants struggle to hold landlords accountable”

What does that mean, exactly? If it means work is involved for tenants who wish to go after landlords, well yes, some work is in fact involved. Landlords still have some due process rights and tenants cannot automatically & effortlessly make accusations of misconduct stick. Hence the “struggle”.

Nonetheless, tenants have significant rights that the Times fails to mention. Tenants can escrow rent payments with the court in most states if the property is not in proper condition – LLC’s do not impede that step. They can report code violations; LLC ownership does not change that. Ditto suing the landlord.

I suppose in a perfect world tenants would not have to “struggle” to hold landlords accountable. But in this world, tenants have plenty of recourse – though it does take a little bit of “struggle” since landlords also have some rights of their own.

Of course, the NYT fails to discuss how hard it is for landlords to hold tenants accountable…. they trash properties, skip out, leave utility bills & liens, and often have no income or assets to pay for the damage. But discussing the landlord’s “struggle” would require balance instead of bias.

“[LLC’s cause] cities fail to fix blight”. Nonsense. Cities failure to fix blight is not attributable to LLC’s. It is attributable to the usual governmental inefficiency, incompetence & laziness. Specifically, cities can force properties to be properly maintained via building codes. Violations can be prosecuted civilly or, in some places such as Ohio, criminally. The presence of an LLC makes such prosecution harder but does not prevent it.

Specifically, every LLC has a statutory agent. The purpose of a statutory agent is to be easily accessible and to accept notice of lawsuits (i.e. – service of process) on behalf of the LLC’s owners. When a city sues to enforce its code, in most cases, the statutory agent informs the LLC’s owners to appear & defend themselves. In cases where the statutory agent has resigned or the LLC owners have absconded, a city still has legal options. For example, it can serve the LLC owners via publication (i.e. – notice in the newspaper). Since very few people read the newspaper looking to see if they’ve been sued, this approach usually results in a default judgment against the LLC. This is what banks do when foreclosing on absconded borrowers. Further, if a city’s attorneys were diligent (often not the case), they could also sue to “pierce the veil” of an LLC, making the owners personally liable for the default judgment.

A city could also engage in due diligence to track down an LLC’s owners. A city can, for example, question or depose property managers, closing companies, lenders, tenants and others to ascertain the identity of the people behind the LLC.

Such approaches would take diligence & effort – and that is the Times’ real objection. The LLC is not what “prevents cities from fixing blight”. Rather, the general incompetence, laziness, and inefficiency of “public servants” prevent them from using existing legal tools to fix the blight.

Here’s what the Times & government “workers” are really after: The automatic ability to know who owns the LLC and the ability to effortlessly go after said owners. In other words, less privacy for citizens and more power for the State.

I have personally seen this awful mentality in action. For example, I represented a client who bought houses “subject to” the deed (i.e. – bought the property and made payments on the existing loan; essentially an informal assumption of the loan). The government’s attorney (a former ACLU attorney and Hard Left Nutjob aka “Progressive”) used the existing statute to accuse my client of “deceptive & unfair business practices”. The government’s case took time, effort, and competence. As such, it ultimately fell apart. The attorney in question then lobbied hard for the legislature to simply ban Sub2 transactions. After all, it would save her a bunch of effort – at the trivial (in her mind) cost of everyone else’s economic liberty & due process. If you ever wonder why we have so many expensive regulations that ban so many things and stifle liberty, commerce & wealth creation, now you know. New York Times Democrats (and the RINO’s who love them) do not want to be bothered with due process or the tedious task of actually having to prove improper conduct in court. Instead, they just want, with the stroke of a pen, to “regulate” (i.e. – ban, complicate, or price out of the reach of the common man) whatever it is they happen to dislike. In short, they detest due process and are eternally on the prowl for more power.

The Times is just getting warmed up. Here’s another pretext to limit landlords’ existing rights:

“[LLC’s mean that] researchers can’t answer basic questions about the housing market”. The horror! And the hypocrisy. Can you imagine how the NYT would react if someone proposed to limit, for example, “a woman’s right to privacy” to help “researchers answer basic questions”?

Here’s what’s behind the desire for more information and less privacy: Liberals like to “plan”. By “plan” they really mean “force everyone else to do what they think is best”. And to “plan”, they need information that has been made private by LLC’s. The implicit solution? Modify LLC’s so that government has access to even more private information than it does now. For liberals, privacy exists if you want an abortion. But privacy in commerce? Forgetaboutit.

The “evidence” in favor of eliminating the privacy provided by LLC’s? Some (no doubt left-wing) professor says that people do not have privacy in the real estate market except for when LLC’s unfairly provide them with such privacy. Pay attention to what the Times is doing here. It is trying to redefine the baseline (landlords have some privacy via LLC’s & other means) as “property owners have no privacy, it’s just how things are”.

Of course, it is untrue. Our English system has also included trusts for centuries. And trusts have long been used to provide privacy (see Illinois Land Trust). LLC’s did not add privacy. They added a liability shield. Silly professor.

Just in case the sacred opinion of one State-worshiping professor isn’t enough, the Times trots out a second one.

“Should tenants have a right to know who they’re renting from? Should cities have a right to know who owns the property?” asks a lefty law prof. “The answer is a resounding yes”. Well, if you say so. But wouldn’t it be nice if the Times article were balanced enough to actually discuss & debate that point instead of simply citing a weak & biased “authority’s” purely subjective opinion as gospel?

Why should an increasingly powerful State be given yet more power? And in this case, why should cities that often abuse their already vast power be given yet more?

Four examples of how cities abuse their power with regard to landlords come to mind:

Unconstitutional inspections of rental properties that purport to “increase safety” but are really designed to “raise revenue” for wasteful and financially rapacious cities.

Code enforcement that is no longer designed to maintain safety but to (you guessed it) “raise revenue” (e.g. – $500 fines for having grass that is too long).

Monopolistic water companies that charge extortionate amounts for water – and use that power to force landlords to pay their tenants’ water bills.

Rent-control laws that have created blight by banning landlord profit and causing landlords t walk away from properties, leaving a wasteland behind them.

Let’s give these same people more power – sounds like a great idea!

The NYT continues with “[LLC’s] make it impossible for city officials to aim scarce resources at the most problematic owners”.

Again, nonsense. It is not “impossible”, it merely takes effort & competence. Further: The government overall takes up 34% of GDP – that’s a bit more than a third of the wealthiest economy in the history of our species, circa $6+ trillion per year. Only a bunch of left-wingers who always want to seize more, more, more would equate those numbers with “scarce resources”. Paying grossly inflated pension numbers, funding diversity projects & sensitivity training, and grossly over-paying unionized “workers” is a likely cause of any “scarcity”. Perhaps government should stop spending on nonsense and actually focus on core functions, such as taking the effort to track down bad actors.

Well, there’s more in the same vein. But reciting the remainder of what is wrong with the NYT article would simply be too tiresome to bother, not to mention redundant.

What was useful?

Evidently, as of 2015, only 15% of rental properties are owned via LLC’s or similar entities. That number is predictably skewed towards the larger properties. I was surprised at the low percentage. Most landlords evidently own in their own name, or perhaps in trust.

Another statistic somewhat contradicts the 15% number unless the difference is made up by ownership via trust. That stat: In 1991, 91% of rental properties were held via the owner’s personal name. By 2015, that number had fallen to 74%. About 9% of single-family home sales were to LLC’s in 2017.

Bottom line: LLC’s provide benefits. They provide a degree of asset protection and a degree of anonymity. They also annoy liberals. If you are interested in learning more, I’d suggest one of two venues:

Consider attending our one-week event in Orlando which will include entity & asset protection topics, as well as detailed information on self-directed IRA’s, the new tax law, and tax planning for RE in general. The classes are from June 25 to June 29, 7 am to noon each day. In addition to conveying detailed information with lots of opportunity for off the clock Q&A, the purpose is to provide a tax-deductible vacation. You can attend class in the am, write off travel, hotel & meals and spend the rest of the day with the family…..just one more way we help keep the IRS at bay. For more information, please see http://iralawyer.com/vacation-sdira/.

12 Responses to New York Times Article on LLC’s & Landlords and John’s Not-Really-Very-Brief Comments on the Same

Thanks John! In the city of Detroit right now the city is sueing landlords for all there tenant records in oder to go after tenants not paying city residency taxes. What a fishing trip!! Unfair to landlords and tenants alike. If you live in a fancy apartment in the city you probably work in the city and your employer already withholds the puny tax. This so uncalled for and more lazy bueauracy. Ps, whats with this crazy font??

Thanks John, as always, some very insightful and interesting information. That said, it’s hard to get past the finger pointing at “liberals” and “their agenda”. I appreciate the time and effort you take to keep us all informed, I just wanted to point our the “struggle” I sometime have with your writings, and the hypocrisy of this specific one: an unbalanced article about an unbalanced NYT article. Keep up the good work!

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